Bulletin

PFO Bulletin #4: Fiscal Options for a Poverty Free Ontario

In 2010, when questioned by supporters of the Put Food in the Budget (PFIB) campaign about where the $100 a month Healthy Food Supplement (HFS) was in the Ontario Government’s agenda, Finance Minister Duncan offered “everything is on the radar but we have to know how to pay for it”.

PFIB supporters and leaders on the Poverty Free Ontario initiative in communities across the province need to be prepared with some arguments about the inevitable questions on how to finance the kinds of proposals for which we are advocating, even though we realize that the basic issue remains the inequitable sharing of the great wealth that exists in this province and country. On March 10, Anglican Bishop Linda Nichols reminded us of that. Speaking at a PFIB public event at Queen’s Park after a meeting with Finance Minister Duncan, Bishop Nichols said:

“We don’t accept the argument that Ontario can’t afford to help the poor. That’s a morally bankrupt position. We live in a wealthy society.”

Poverty Elimination is “Self-financing” Over Time

We know that allowing people to live in poverty costs our healthcare system in Ontario about $2.9 billion annually (OAFB Cost of Poverty Report, 2008), which is about 18% of the 2011 Ontario deficit.

Research at the University of Toronto by Ernie Lightman, Andrew Mitchell and Beth Wilson tells us that a $1,000 increase in annual income to the poorest fifth of households in Ontario will result in 10,000 fewer chronic conditions and 6,600 fewer disability days lost at work every two weeks (Poverty Is Making Us Sick, 2008).

Notably, PFIB’s proposed Healthy Food Supplement (HFS) would provide $1200 in increased annual income to social assistance recipients, which would produce the scale of savings to the healthcare system noted above by the U of T study.

Since Health is one of the Ontario Government’s priorities, the personal as well as the economic benefits should put the HFS on the government’s radar. Since there are almost 600,000 adults currently on social assistance, this would cost about $700 million. This is a very high caseload because of the recent recession and would be expected to come down as the economic recovery helps more recipients leave the system.

Fiscal Options Exist

It is hard, of course, to convince politicians with arguments of long-term pay-offs when their horizons do not extend beyond the date of the next election. Hard economic times and affordability are used as excuses for inaction, even though there was no political resolve to address the issue when the economy was doing well either.

In good or bad economic conditions, governments always have fiscal options. High tax Nordic countries with the lowest levels of poverty and strong economies have demonstrated that committed and competent governments can work on multiple priorities at the same time. Candidates for elected office in the upcoming provincial election can be challenged to consider the fiscal options that exist to implement measures like the Healthy Food Supplement in the short-term and to end poverty in Ontario in this decade.

Option #1: Maintain Competitive Corporate Tax Rates at 2009 Levels

The 2009 Ontario Economic and Fiscal Outlook presented by Finance Minister Duncan projected a $4.5 billion cut to corporate income taxes between 2009 and 2013 as a way to make Ontario business more competitive in the North American market.

Actually, we will be more competitive by 2013 than we were in 2009, when our combined federal and provincial tax rates at 33% were already below all rates projected for the USA (39.5%) and the Great Lake States, our main jurisdictional competitors. Last year a KPMG competitiveness study placed Canada second only to Mexico and way ahead of the United States on a list of “tax friendly countries for business” (Toronto Star, May 12, 2010).

The Ontario Government’s objective is to reduce rates by a further $2 billion so that by 2013 the combined federal (also coming down) and provincial corporate tax rates will be 25%, making Ontario’s rate more competitive than even the lowest corporate rate in the US – the State of Texas (36%).

Surely business in Ontario can compete on more than just “price” (e.g. education, skill and quality of workforce, state of public infrastructure like the education and healthcare systems). A “Walmartian” competitive strategy based on the lowest “prices” (i.e. corporate taxes) will only further drain the Treasury to the point that it will erode the competitive advantages that we now have in the quality of our public institutions and services.

Do we really have to have corporate tax rates 15% below the American rate by 2013? Even if Ontario were to forego the $2 billion in this corporate tax cut schedule not yet implemented, we would still be 8% below the American rate – reclaiming about $2.0 billion or so to be available for important measures like increasing social assistance so that people in deep poverty can live with some measure of health and dignity.

Option #2: Limit New Tax Benefits to Those in Need

Cutting taxes for individuals and family households also, of course, promises to be a major part of the upcoming provincial election campaign, and, it appears, that the three major parties will do battle on “taxpayer pocketbook” issues.

While we can point to the opportunity cost to reducing and ending poverty of foregoing corporate tax revenue, it is important to point out that personal income tax cuts also have their social costs. The reduction of the cut in the provincial tax rate from 6.05% in 2009 to 5.05% in 2010 on the first $37,100 of individual earnings cost the Ontario Treasury about $1.3 billion. This is a socially inefficient use of scarce fiscal resources. Persons with taxable incomes of $37,100 or more each get $370 in tax savings ($740 in households of many wealthy and advantaged couples). In contrast, people on social assistance get nothing. A single working poor parent with a taxable income of $15,000 gets a more limited saving of $150.

This distribution of tax benefits is socially regressive and unrelated to need. It is a poor use of $1.3 billion in tax revenue, when a Healthy Food Supplement would cost half as much, be directed to those most in need, and provide immediate benefit to local economies in communities across Ontario.

An economist has calculated for the PFIB campaign that it would cost the average Ontario taxpayer $100 a year to fund the HFS – i.e. provide every adult on social assistance with $1200 more annually. While there is political resistance to this investment in the health and well-being of the poorest part of the province’s population, there is no hesitancy to give tax credits to the broad middle class and to broadcast the action. In 2010, a half-page ad in the Globe and Mail proudly informed middle class families making a household income of $125,000 a year that they will be receiving a $790 tax credit in the form of a rebate because of the introduction of the Harmonized Sales Tax.

Even allowing for some level of tax credit related to the HST change, one wonders if middle class families with household incomes well over $125,000 would be terribly averse to getting only $690 of that rebate if they knew that it would support 579,000 people on social assistance to live with more health and dignity. This might even be more compelling to the taxpaying public if it understood the cost savings to the overall healthcare system that a reduced personal tax credit would bring.

But, the Government does not choose to advertise or promote that kind of understanding to the wider public. Rather, it chooses to maximize the benefit of the tax cut to the broad middle class for its own political advantage and there is no contrary evidence that a Government of another political stripe would have acted differently.

The Full-Day Early Learning Program launched last year fit the Ontario Government’s clearly expressed Education priority. In announcing the implementation of this program at a cost of $1.5 billion over three years, the Government gave no indication that it had made any special provision to pay for it.

Therefore, it must be factored into the Government’s deficit financing – that is, the program’s cost is being covered as part of the Government’s deficit management over the next three to five years. The Government is prepared to let this program add to its deficit and extend its deficit reduction period because it believes that Education is an important priority with returns far down the road in terms of the benefits of early stimulation and learning for child development. It might take a little longer to return to a balanced budget, but the benefits to Ontarians are considered worth the delay.

Similarly, the Government could decide to take the same approach with the HFS or any measure to end poverty in Ontario. It could even legitimately argue that an investment in poverty elimination is one way that it is adhering to its Health priority. As pointed out earlier, in the case of the HFS this is practically “self-financing” over time, given the clear relationship between poverty and costs to healthcare system.

Conclusion

The preceding arguments for financing the Healthy Food Supplement and other needed measures to end poverty in Ontario are compelling. We are under no illusions, however, that they will be readily accepted by the political parties and candidates running for office this October. Even the 21 sitting MPPs who completed the Do the Math survey last year and acknowledged on average that the cost of basic monthly living necessities for adults on social assistance were more than $750 higher than what they received on Ontario Works have taken no serious action to promote the HFS in their caucuses.

Paying for the HFS is not an issue of not having the means or fiscal options to act – it is an issue of the political will to include Ontario’s most vulnerable within a government’s expressed policy priorities.

The alarms are sounding, however, and not from the usual sources. Just this week, the Conference Board of Canada alerted the business community and the public to the growing inequality in our nation (How Canada Performs: Is Canada becoming more unequal?http://www.conferenceboard.ca/hcp/hot-topics/canInequality.aspx ). The gap between the lower and middle income groups and the highest income groups has grown significantly over the last 20 years. The Report shows that government tax and transfer programs have had an important effect in reducing income inequality, but these programs have been seriously eroded since the mid-1990s, leading to higher levels of inequality.

Poverty is a collective issue demanding the concerted effort of all governments. The Provincial Government is responsible for social assistance and labour market policy. Poverty Free Ontario has proposed measures in these areas that would end deep poverty in the province (i.e. 80% or lower of LIM-AT) and bring the general poverty rate down to levels comparable to the historically lowest poverty jurisdictions in the western world (4% or lower). We contend that there are viable fiscal options to finance this collective commitment as outlined in this Bulletin.